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Day Trading or Long Term Investing?

 

As Financial Advisors we deal with a broad range of clients on an ongoing periodic basis who have various objectives and goals. Since the COVID-19 outbreak we have seen a meteoric rise in younger clients asking us for advice on whether they should go about Day Trading or Long Term Investing. Clients whose age demographic aren’t usually in tune with the financial world are becoming more and more interested in beginning their investment journey.

 

This is brilliant, as we all know, investing early and putting money away at a young age is the single greatest step you can take on your journey to a financially successful future. Taking advantage of compounding interest effects, long term investment horizons and reduced spending habits have caused a tidal wave of change.

 

Rise of the Day Traders

 

Online trading apps and platforms which we have all come to know, have helped increase the appetite for expediency among the younger generations. Slick interfaces, low charging structures and quick account setup times have opened the markets up to many. On the face of it, this is great, undoubtedly so.

Day-trading

 

The introduction of a new generation of investors into the marketplace now can reap all the rewards investing has to offer. Only the fact remains that many investors entering the investment landscape have done so with little to no previous experience. One key change is happening, many investors are interpreting “long-term investing” as “day-trading”. Day-trading should not be confused with long-term investing.

 

Day trading, as the name suggests, involves frequent buying and selling of stocks or investments on the same day. When the market opens, so begins the buying and selling. When the price of a stock changes to a point that is deemed favorable, the trader can make a profit, sometimes small, sometimes substantial depending on the stock and market price.

 

Pros

  1. Quick to set up an account, and low charging structures (depending on the platform).
  2. Little capital (money) required to maintain a daily account balance to trade.
  3. Significant gains can be made with the right trades over a short period of time.
  4. Disciplined and dedicated investors can be highly successful with the right financial analysis tools and a good understanding of how the markets work.

 

Cons

  1. More capital (money) required for those who wish to trade more frequently throughout the day.
  2. Hefty fees or commission may be deducted from profit made from each trade, sometimes costing you more.
  3. Trading most often requires a lot of time and attention, at least two hours each day. For the serious traders, around five hours each day.
  4. Running the risk of over-trading and doubling down on potential losing trades.

 

Long Term Investing

 

Long-term investing is known as the more prudent approach for investors. This method involves the buying and selling of investments over a period of years, usually longer than three to five years. Here, the investor will approach an investment company and sit down with a Financial Advisor to have a conversation about his or her plans for the future and what goals they aim to achieve in the long term. Why is this regarded the more prudent approach?

Long-term Investing

 

Its about planning for the bigger picture. A Long-term investor will often use this route with the intention to realize sustainable returns over a period of time and will rely on professional fund managers to actively monitor and manage the stocks on your behalf (at a reasonable charge).

 

The Advisor will take into consideration the investor’s personal and financial circumstances, assess and calculate the investment time horizon (term) and the level of investment risk he/she is prepared to take and that is required, and based on these factors, put together suitable investment solutions to achieve the investor’s goals or objectives. 

Pros

  1. Option to invest a small amount regularly (monthly), or a larger one off investment.
  2. Asset class diversification to effectively manage investment risk (Equities, Bonds, Property, etc).
  3. Commission and charges are disclosed upfront and transparent to the investor. Financial Advisor fees can be negotiated.
  4. Suitable for investors who wish to invest long term and to achieve future financial goals.
  5. The outcome of staying disciplined and invested in the market over time (riding the waves of short-term volatility) has historically delivered positive and consistent “compounding” returns, with the investor always coming out on top.

Cons

  1. Financial Advisor fees, fund management charge, fund switches and trading costs apply (usually offset by fund performance over time).
  2. Not suitable for impatient investors who are looking for immediate returns.
  3. Historically, markets have been impacted by periods of downturns (capital at risk). Investors can make the mistake of selling out of the market, locking in investment losses.

 

What route should I take?

 

The key difference between day-trading and long-term investing is that one requires skill and attention, and the other simply requires patience. It really depends on your personal investment objectives, the amount of capital you have, your attitude to risk, and how much time you wish to dedicate to it. Many investors choose one or the other, some choose to incorporate both methods as an investment strategy. Its important to consider that you should never risk what you cant afford to lose. This is why it is recommended to assess your attitude to risk, and match the appropriate investments to your personal risk profile.

 

We therefore urge anyone who plans to focus their sole investment and retirement strategy on an online trading platform to do the proper research and due diligence that such an undertaking demands from you. If done right, this can provide great results. 

Contact us for Financial Advice

 

Whether you plan to incorporate trading in a personal capacity with other investment strategies or plan to go it alone it is always worthwhile receiving impartial financial advice first.

 

Chat to the team at Smart Financial today!

 

      Drop us a call here   

 

Or leave your details below and we will get in touch with you…

 

 

Where to find us

 

Locally:

If you are looking for a Financial Advisor near you, you can locate us at the famous Walkinstown Roundabout in Dublin 12.

Address: Greenhills Centre, Units 1 & 2, Greenhills Rd, Walkinstown, Dublin 12, D12 YH22.

 

Nationally:

If you are based outside of Dublin, we have Financial Advisors located in Co. Wicklow and Co. Cork (Munster), who would be happy to commute to you.

 

Click on the map below for directions to our offices…

 

Financial Advisor near me

 

 

Need to speak to a Financial Advisor?

Fill out your details and enquiry below, and one of our Qualified Financial Advisors will get back to you shortly.

ESG Investing

What is ESG Investing?

 

ESG investing is a method of sustainable investing that looks at a company’s environmental, social and governance practices, alongside more traditional financial measures. Here, investors consider both an investment’s financial returns and a company’s corresponding impact on the environment (be it positive or negative) as a way of generating those returns.

 

Understanding environmental, social and governance (ESG) issues and trends helps Investment firms to both mitigate the risks that could impact their investments (by assessing a company’s ESG score) and help identify investment opportunities.

 

Environmental

An investment’s environmental impact is important to many investors. This can involve avoiding fossil-fuel businesses such as the oil and gas industry or seeking to invest in companies that actively benefit the environment, such as renewable companies.

 

Companies that would have a negative impact on the environment in their daily operations are those that would contribute more towards:

 

  • Pollution
  • Deforestation
  • Resource depletion
  • Climate change

 

Social

The social component of ESG investing is focused on the impact a company makes on its customers, staff, and suppliers. This may include a company’s consideration towards diversity in the workplace, and their responsibility for the labor practices in the supply chain (for example in the retail and fashion industries).

 

Investors have the potential to influence these companies, and further shape our society to deliver a positive social impact by addressing issues like:

 

  • Working conditions
  • Modern slavery & child labour (Human rights)
  • Employee relations

 

Governance

Investment Managers, and others looking to allocate capital, have a responsibility to hold companies to higher governance standards, to ensure the protection shareholder rights, disclosing information, etc.

 

The following factors are usually taken into account when determining a companies governance standards:

 

  • Company Taxes
  • Corruption
  • Executive pay
  • Board diversity
  • Political influence

 

Why ESG Investing matters?

 

Impact investing

Impact investing is the process whereby businesses develop a program or projects or do something positive to benefit society. These can include putting money into ventures which don’t aim for a financial return, such as non-profits and charities.

 

As an investment strategy of impact investing, “Impact Funds not only place a high priority on creating constructive social outcomes, they also generate decent financial returns for investors.

 

A Positive Impact

Nowadays, there is a growing number of investors that are commitment to a sustainable future, who would prefer their money to go toward stocks and responsible investments that will see them both generate a profit and reflect of their social standards and values.

 

As Financial Advisors, Investment Managers, Trustees, and the like we should to continue to deliver thought leadership and education for investors, companies, and stakeholders, to be a good corporate citizens to help foster responsible investments for the future.

 

How Investment Firms engage with Companies

 

  1. Research & Engagement: Ethical Fund Managers research company activities and measure them against internationally recognized social, ethical, legal, and environmental standards (taking into account human rights, the environment and anti-corruption, etc.). Analysts factor in ESG considerations within company analysis to identify all the potential risks and opportunities.

 

  1. Screening: As shareholders, they then engage with companies through active management, ethical screening, and collaboration. I.e., Screen companies out of the investment universe that fail their Sustainable and Responsible Investment criteria).

 

  1. Portfolio Construction: The Fund Managers would then collate these companies (or stocks) where their ESG Analysts provide an analysis of the ratings of the different types of ESG risks apparent, and construct a portfolio with a lower carbon footprint compared to the benchmark.

 

How do investors benefit from ESG Investing?

 

Competitive Returns

 

Growing evidence shows that over the long term, ethical funds can out-perform traditional funds.

 

Taking an example from Standard Life’s Global Equity Impact Fund against the MSCI ACWI this illustrates they are able to generate decent financial returns for investors.

 

Standard Life’s Global Equity Impact Fund - ESG InvestingStandard Life’s Global Equity Impact Fund returns - ESG Investing

 

Lower Risk

 

The white paper by the Morgan Stanley Institute for Sustainable Investing study (in the US) found that sustainable funds consistently showed a lower downside risk than traditional funds, regardless of asset class.

 

The study found that during turbulent markets, as in 2008 and 2009, traditional funds had significantly larger downside deviation than sustainable funds, meaning traditional funds had a higher potential for loss.

 

Pricing

 

More than $30 billion has flowed into E.S.G. funds over the last 20+ years, and given economies of scale, this has reflected a trend for Fund Managers to start reducing charges on ethical funds, additionally as a way of promoting responsible and ethical investing.

 

Companies like Standard Life have recently started launching their ESG funds, like the Standard Life Multi-Asset ESG Fund allowing individual investors to incorporate as part of their investment strategies and reap the long term rewards of ESG investing, commit to sustainable future.

 

Price and Risk:

 

AMC Range ESMA risk rating
Global Equity Impact Fund NEW: 0.60 – 1.10% 5
Global Corporate Bond SRI Fund 0.40 – 0.90% 4
Multi-Asset ESG Fund 0.50 – 1.00% 4

“The AMC (Annual management Charge) of the Global Equity Impact fund reduced from 1.35 to 1.10 in October, demonstrating that you should not have to pay a premium price for a fund that have the ultimate goal of trying to do good in the world, while providing investors with the opportunity to align their own values with their investment objectives.”

 

How to get started with ESG Investing?

 

Taking a responsible approach to investing is not about sacrificing returns, it is about delivering more sustainable returns over the long term and in turn securing the future.

 

If you need Financial Advice on how to get started with Ethical Investing, and want to know how to incorporate ESG & Impact funds into your Investment Strategy or Retirement Planning, contact our Smart Financial Advisors, and they will be able to guide you through the process.

 

When providing advice, Smart Financial considers the adverse impact of investment decisions on sustainability. As part of our research and assessment of products, we will examine the Product Providers literature to compare financial products and to make informed investment decisions about ESG products.

 

Smart Financial will at all times act in the client’s best interests and keep clients informed accordingly.

 

The consideration of sustainability risks can impact on the returns of financial products.

 

We are remunerated by commission and other payments from product producers. When assessing products, we will consider the different approach taken by product providers in terms of them integrating sustainability risks into their product offering. This will form part of our analysis for choosing a product provider.

 

 

Where to find us

 

Locally:

If you are looking for a Financial Advisor near you, you can locate us at the famous Walkinstown Roundabout in Dublin 12.

Address: Greenhills Centre, Units 1 & 2, Greenhills Rd, Walkinstown, Dublin 12, D12 YH22.

 

Nationally:

If you are based outside of Dublin, we have Financial Advisors located in Co. Wicklow and Co. Cork (Munster), who would be happy to commute to you.

 

Click on the map below for directions to our offices…

 

Financial Advisor near me

 

 

Need to speak to a Financial Advisor?

Fill out your details and enquiry below, and one of our Qualified Financial Advisors will get back to you shortly.